I’m a professor who’s interested in our economic history and the theory that went into making it – for good or ill. On Past & Present, I write about how history can help illuminate the economic challenges we face today, and how very often historical sources do validate free-market economics. I’m author of what’s now the standard history of supply-side economics, Econoclasts: The Rebels Who Sparked the Supply-Side Revolution and Restored American Prosperity (2009). I have a Ph.D. from Harvard, teach at Sam Houston State, and live in that game capital of the Americas – Houston.

7/24/2012 @ 11:26AM4,631 views

Obama's Gaffe Signals a Change in Strategy

The president and Occupy Wall Street start to diverge on the matter of the rich. (Image credit: AFP/Getty Images via @daylife)

President Obama’s major verbal misstep ten days ago in a speech to supporters in Roanoke, Virginia is getting attention for all the right reasons. Basically, the public is aghast, perplexed, and a little exasperated that a chief executive of the United States would say the following, as indeed Obama did on July 13: “If you’ve got a business, you didn’t build that. Somebody else made that happen.”

The argument the president was trying to make, as he sort of explained in the speech, is that behind every successful entrepreneur is an extensive support network, from the education the business owner received as a child, to the public infrastructure any private outfit makes use of in its operations.

It was a gaffe through and through, and many good punches have landed on the president’s jaw on account of it. People have pointed out that Obama made these remarks because he has no experience himself with go-it-alone success (James Taranto); that he badly conflated government with society (Charles Krauthammer); that the president sounded like he isn’t even from this country (Mark Steyn).

Perhaps lost in the piling on—all of it justified—is that this new low in presidential rhetoric is actually of a piece with what Obama and his campaign team have been doing over the last few weeks and months. Before this year, it certainly appeared that the Obama re-election effort would focus on the issue of economic inequality. The rich, as the president had been intoning since his first budget message a few weeks into office, have to be cut down to size, with the benefits spread out to the lower classes. The Occupy Wall Street Movement, as it materialized in 2011, essentially carried water for the president on his chief re-election theme.

As 2012 progressed, however, we have seen a shift in Obama’s position on the rich. Now, it appears, the president is conceding that the rich are necessary, to growth and job creation, with the proviso that the rich are also made possible in the first place by big government—strange as that may sound.

The Roanoke remarks do not, after all, make a point of the rich’s uselessness or iniquity. Rather, they imply that we can create still more rich (in the form of business owners) along with the jobs they will create, if we free up government spending on roads, bridges, teachers, science research, and so forth, things that will help business get on the path to success.

It’s a tortured argument of course, but it does seem to be the new Obama line on the rich. And policy remains the same. Before 2012, as now, the president still wants considerable new taxes on high earners.

Why would Obama want to pivot away from the stock inequality argument, in favor of making convoluted explanations about how the rich actually succeed? My hunch is that the president’s team made a decision to desert the sinking ship that is the academic research that was the basis of all the inequality contentions to begin with.

As I explained in my column last week, and as is a subject of a new paper I just published with the Laffer Center for Supply-Side Economics, the “Piketty-Saez” research on inequality (named after the two elaborators) that Obama and Occupy Wall Street embraced and made their own is faring so poorly at the hands of professional review at the moment—it’s being challenged from many quarters—that to continue to latch onto it is to put one’s self in jeopardy.

Readers of my column asked for clarification of one point in that research that just doesn’t sound right. Is it true that the Piketty-Saez papers used pre-tax income as the basic unit of analysis?

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